Lynx Equity Strategies analysts KC Rajkumar and Jahanara Nissar are hearing chatter that Apple (AAPL +2.1%) could cut its secretive self-driving vehicle program.
If true, the reversal could ding Services through the loss of a new growth vector outside the core devices and might indicate that the stagnating iPhone sales have warranted some cost tightening.
Key quote: "We have two take-aways: 1) A sudden and significant shortfall in iPhone revenue is causing a level of distress within Apple that is forcing it to make hard choices, and 2) if Apple, this most well-resourced of companies, is having to cut back on autonomous vehicle investment, what does that tell us about the prospects of the overall autonomous vehicle industry?"
The data comes from a new Daring Fireball report, citing comments Tim Cook reportedly made at a January 3 employee meeting.
The 11M figure is nearly 10 times the standard battery replacement rate. The replacements likely helped feed the decline in iPhone upgrades that caused Apple to guide a soft holiday quarter then cut that guidance.
A patent lawsuit filed by Qualcomm (NASDAQ:QCOM) against Apple (NASDAQ:AAPL) has been thrown out by a German regional court, which said the copyright in question was not violated by the installation of its chips in some iPhones.
Qualcomm, waging a worldwide patent battle with Apple, said it would appeal after winning a separate case before a court in Munich in December that enabled it to enforce a local ban on the sale of older iPhones.
Wedbush analyst Dan Ives calls Apple's (NASDAQ:AAPL) pricing hubris on iPhone XR the major factor in the "earnings debacle" for December. Ives say while iPhone XS continues to be focused on premium price points, the linchpin on the upgrade cycle was XR within the China region representing ~20% of all iPhones in the window of an upgrade opportunity. "To put numbers around this, with ~750 million active iPhones worldwide based on our estimates and 350 million of those in a window of an upgrade opportunity over the next 12 to 18 months, we estimate between 60 million to 70 million of iPhones slated to be upgraded/new purchases are out of the key China region," he notes.
Ives thinks Apple should "aggressively" cut prices in China on XR and pull forward an estimated is roughly 15M to 20M iPhones sales that would otherwise be sitting idle or be lost to competition.
He also recommends that Apple make a major content acquisition to drive the services flywheel. "In a nutshell, ultimately with $250 billion+ of potential dry M&A powder now is the time for Apple to rip off the band-aid and finally do significant content M&A with the landscape ripe otherwise it will be a major strategic mistake in our opinion that will haunt the company for years to come, with content being the rocket fuel in the services engine that is currently missing in the portfolio," he writes. On that M&A wildcard, Ives and team call A24, Lionsgate and Sony Pictues (NYSE:SNE) "higher probability" targets and sees Viacom (NYSE:VIA)/CBS (NYSE:CBS) and MGM Studios as "medium" probability targets. Netflix, Disney and various videogame publishers are called "low" probability targets.
Wedbush keeps an Outperform rating on Apple and price target of $200.
Morgan Stanley's Katy Huberty, a long-standing bull of Apple's (NASDAQ:AAPL) Services, says the revenue slowdown in the division last quarter looks "temporarily in nature."
Services revenue rose 18.3% Y/Y in Q1, down from the 25% growth in the prior quarter. Huberty attributes as much as $425M of the estimated $600M shortfall to AppleCare, which would decline along with iPhone sales.
The latest report from the Nikkei Asian Review suggests Apple (NASDAQ:AAPL), which slashed its quarterly sales forecast last week, has reduced planned production for its three new iPhone models by about 10% for the January-March quarter.
Qualcomm (NASDAQ:QCOM) also said comments from CEO Tim Cook - stating there was no recent settlement discussions between the iPhone maker and the chipmaker - were "misleading."
Apple (NASDAQ:AAPL) is pointing to a higher open this morning as CEO Tim Cook shared why he is optimistic about the tech giant's future.
"I think Apple is not well understood in some of Wall Street. For example, I think there are several people that believe the most important metric is how many iPhones are sold in a given 90-day period or what the revenues is."
"I want the customer to be happy. Because if they’re happy, they will eventually replace that product with another. And the services and the ecosystem around that will thrive."
"Revenue from wearables, namely the Apple Watch and the AirPods, is already "50% more than iPod was at its peak."
New Apple services? Our "greatest contribution" in 2019 will be "about health" and expanding on our healthcare portfolio.
Meanwhile, Cook's total compensation for fiscal 2018 rose 22% to $15.7M, driven by a cash bonus that hinged on Apple exceeding financial targets set by the board.
In a CNBC interview, Apple's (AAPL +2.1%) Tim Cook says the company's devices and services are "probably underappreciated" by Wall Street.
Key quote, on market reaction: “We sort of look through all of that. We think about the long term. And so when I look at the long-term health of the company, it has never been better. The product pipeline has never been better. The ecosystem has never been stronger. The services are on a tear.”
See the full interview tonight on "Mad Money" 6 PM ET.
Samsung (OTC:SSNLF) strikes a deal with Apple to include an iTunes movies/TV app and AirPlay 2 capabilities on 2019 smart TVs. The company is also adding the app to 2018 smart TVs through a firmware update.
Apple's (NASDAQ:AAPL) decision to free up the iTunes ecosystem is indicative of the growing importance of services revenue to the company and the huge investment out of Cupertino in TV content. It also leads The Verge to ask the pressing question of why would any Samsung smart TV owner buy an Apple TV box now?